Malaysia’s power struggle puts the economy’s outlook at risk

Bloomberg

Malaysia’s political upheaval is jeopardising the economy’s outlook at a time of heightened global risks and brewing discontent among locals about rising living costs.
The ruling coalition collapsed Monday amid a power struggle between 94-year-old Prime Minister Mahathir Mohamad and his planned successor. The political uncertainty is stalling economic policy, including a stimulus package that was due to be unveiled by Mahathir on February 27 to counter the coronavirus outbreak.
Now, that set of incentives won’t be announced in time as it hadn’t been approved by the previous cabinet, said Ong Kian Ming, who served as deputy trade minister.
“The consequence is that the help that many of the most affected industries would have gotten under the stimulus package now would be indefinitely delayed,” he said on Tuesday.
Even before the virus began disrupting trade and tourism flows and the current political crisis broke out, economic discontent has been slowly growing in Malaysia. Locals routinely complain about the rising cost of living, defying official data which shows inflation at its lowest level in a decade. And several recent studies show Malaysians are struggling to make ends meet.
“There are a lot of issues that are bugging a lot of people, especially the cost of living, unemployment, inflation,” said Ahmad Martadha Mohamed, a professor of government at Universiti Utara Malaysia in the northern state of Kedah. “These are the issues that are currently not being given enough attention by the government.”
Many people “see that whenever they go to the market the prices of goods are going up, purchasing power is becoming less, and younger people that graduated from university couldn’t find proper jobs and are complaining about being unemployed,” he said.
Consumer sentiment has been in recessionary mode through 2019 despite Mahathir raising minimum wages, rolling out blanket fuel subsidies and abolishing a goods and services tax. A weakening in consumer spending could further undermine economic growth — already at a decade low — and erode public support for an incoming government.
The cost of basic needs, unaffordable homes and a lack of job opportunities were Malaysians’ biggest concerns, replacing corruption and power abuse that were top of mind before the 2018 election, according to a September 5 to October 10 survey by EMIR Research, an independent think-tank based in Kuala Lumpur.
In a survey published by Elsevier Inc in November, 82.3% of respondents said living costs are rising, with the poorest 40% — who typically spend more of their monthly income on food compared to wealthier households — feeling it most acutely.
The actual cost of living can vary by almost 70% depending on where a person lives, according to a World Bank report. Based on its calculations, a household in rural Sabah has to earn about 4,300 ringgit a month to reach the same standard of living that 3,000 ringgit will buy in rural Kelantan.
Homes remain unaffordable for many Malaysians, with the World Bank estimating that cumulative salaries and wages increased 59% from 2010 to 2018, while house prices surged 87%.
A new government will need to respond to these pressures as well as address more immediate threats from the coronavirus. Economists have been downgrading 2020 growth forecasts for Malaysia, with Fitch Solutions predicting 3.7% expansion, down from a earlier projection of 4.5%. The central bank cut its benchmark rate in January and signalled more easing to come.
“The political uncertainty bodes poorly for the economy,” said Gareth Leather, an economist at Capital Economics Ltd in London.

“Due to the size of its tourism industry and its close links with Chinese supply chains, Malaysia stands to be one of the countries in the region hit hardest by the measures the Chinese government has taken to contain the spread of the coronavirus.”